The recent decades changes in reimbursement strategies aimed to end waste and promote innovative and cost-efficient delivery systems.

productivity gains from PPS have not materialized to the extent predicted.

Hospitals now employ more people to treat fewer patients, and the increase is not accounted for by the greater severity of patient illness in the late 1980s and in1990s.

Although employers, insurers and public are spending less on inpatient care, the rising use of outpatient procedures has simply increased costs in that area which counters the savings (Altman, Goldberger, and Crane, 1990).

4Trends in Productivity Consequences of PPS

The constraints that force healthcare institutions into the role of cost centers, coupled with shifting patterns of inpatient acuity, tight healthcare labor markets, and society's expectations of high quality of care are leading healthcare organizations to a "productivity wall." When the wall is reached, it is quality of care that inevitably is sacrificed for the sake of productivity and profit (Kirk, 1990).

It must be recognized that there are limits to ratcheting up productivity.

It is not always possible to do more with less.

5Productivity Definitions and Measurements

Productivity is one measure of the effective use of resources within an organization, industry, or nation.

The classical productivity definition measures outputs relative to the inputs needed to produce them. That is, productivity is defined as the number of output units per unit of input

6Productivity Definitions and Measurements

Sometimes, an inverse calculation is used that measures inputs per unit of output. Care must be taken to interpret this inverse calculation appropriately the greater the number of units of input per unit of output, the lower the productivity.

For example, traditionally productivity in hospital nursing units has been measured by hours per patient day (HPPD). That requires an inversion of the typical calculations meaning total hours are divided by total patient days.

7Example 9.1Nurses in Unit A worked collectively a total of 25 hours to treat a patient who stayed 5 days, and nurses in Unit B worked a total of 16 hours to treat a patient who stayed 4 days. Calculate which of the two similar hospital nursing units is more productive. SolutionFirst, define the inputs and the outputs for the analysis. Is the proper measure of inputs the number of nurses or of hours worked? In this case the definition of the input would be total nursing hours. When the total number of nursing hours worked per nurse is used as the input measure, then the productivity measures for the two units are

8Productivity Definitions and Measurements

Productivity Benchmarking. Productivity must be considered as a relative measure the calculated ratio should be either compared to a similar unit, or compared to the productivity ratio of the same unit in previous years. Such comparisons characterize benchmarking. Many organizations use benchmarking to help set the direction for change.

Historical Benchmarking is monitoring an operational units own productivity or performance over the last few years. Another way of benchmarking is to identify the best practices (best productivity ratios of similar units) across health organizations and incorporate them in ones own.

9Productivity Definitions and MeasurementsMultifactor Productivity. Example 9.1 demonstrated a measure of labor productivity. Because it looks at only one input, nursing hours, it is example of a partial productivity measure. Looking only at labor productivity may not yield an accurate picture. Newer productivity measures tend to include not only labor inputs, but the other operating costs for the product or service as well. 10Example 9.2A specialty laboratory performs lab tests for the area hospitals. During its first two years of operation the following measurements were gathered Measurement Year 1 Year 2 Price per test () 50 50 Annual tests 10,000 10,700 Total labor costs() 150,000 158,000 Material costs () 8,000 8,400 Overhead () 12,000 12,200 Determine and compare the multifactor productivity for historical benchmarking. .

Solution 11Commonly Used Productivity Ratios

Hours Per Patient Day (or Visit)

inpatientoutpatient 12Commonly Used Productivity RatiosExample 9.3Annual statistical data for two nursing units in Memorial Hospital are as follows Measurements Unit A Unit B Annual Patient Days 14,000 10,000 Annual Hours Worked 210,000 180,000 Calculate and compare hours per patient day for two units of this hospital. Solution hours hours 13Commonly Used Productivity RatiosExample 9.4Performsbetter Associates a two-site group practice, requires productivity monitoring. The following initial data are provided for both sites of the practice Measurements Suburban Downtown Annual Visits 135,000 97,000 Annual Paid Hours 115,000 112,000 Calculate and compare the hours per patient visit for the suburban and the downtown locations of this practice. Solution hours or 51 minutes.hours or 69 minutes. 14Adjustments for InputsSkill-Mix Adjustment weigh the hours of personnel of different skill levels by their economic valuation. One approach is to calculate weights based on the average wage or salary of each skill class. To do that, a given skill class wage/salary would be divided into the top class skill salary. If RNs, LPNs and Aides are earning 35.00, 28.00, and 17.50 an hour, respectively Then, one hour of a nurse aides time is economically equivalent to 0.5 hours of a RN's time and one hour of a LPN's time is equal to 0.8 hours of a RN's time. . 15Adjustments for InputsAdjusted Hours 1.0(RN hours) 0.8(LPN hours) 0.5(Aide hours) 16Adjustments for InputsAdjusted Hours 1.0(RN hours) 0.8(LPN hours) 0.5(Aide hours) 17Adjustments for InputsSimilarly, in outpatient settings, if one hour of a nurse practitioner's (NP) time is economically equivalent to 0.6 hours of a specialist's (SP) time, and if one hour of a general practitioners (GP) time is equal to 0.85 hours of a specialists time, adjusted hours would be calculated as. Adjusted Hours 1.0 (SP hours) 0.85 (GP hours) 0.6 (NP hours) 18Adjustments for InputsExample 9.5 Using data from Example 9.3, and economic equivalencies of 0.5 Aide RN, 0.8 LPN RN, calculate the adjusted hours per patient day for Unit A and Unit B. Unit A at Memorial Hospital employs 100 RNs. The current skill mix distribution of Unit B is 45 RNs, 30 LPNs, and 25 nursing aides (NAs). Compare unadjusted and adjusted productivity scores. 19Adjustments for InputsSolution The first step is to calculate adjusted hours for each unit. For Unit A, since it employs 100 RNs, there is no need for adjustment. For Unit B Adjusted Hours (Unit B) 1.0 (180,000.45) 0.80 (180,000.30) 0.50 (180,000.25). Adjusted Hours (Unit B) 1.0 (81,000) 0.80 (54,000) 0.50 (45,000). Adjusted Hours (Unit B) 146,700. In this way, using the economic equivalencies of the skill-mix, the number of hours is standardized as 146,700 instead of 180,000. Standardized Cost of Labor. hours. hours. Using adjusted hours, Unit A, which appeared productive according to the first measure (see example 9.3), no longer appears as productive. 20Adjustments for InputsStandardized Cost of Labor. Total labor cost comprises the payments to various professionals at varying skills. To account for differences in salary structure across hospitals or group practices, cost calculations can be standardized using a standard salary per hour for each of the skill levels. Labor Cost RN wages (RN hours) LPN wages (LPN hours) NA wages (Aide hours). 21Adjustments for InputsExample 9.6 Performsbetter Associates in Example 9.4 pays 110, 85, and 45 per hour, respectively, to its SPs, GPs and NPs in both locations. Currently, the suburban location staff comprises of 50 SPs, 30 GPs, and 20 NPs. The downtown location, on the other hand, comprises 30 SPs, 50 GPs, and 20 NPs. Calculate and compare the labor cost of care, and labor cost per visit for both locations. 22Adjustments for InputsSolutionFirst, calculate Labor Cost of Care for each location. Labor Cost SP wages (SP hours) GP wages (GP hours) NP wages (NP hours), Labor CostSuburban 110 (115,0000.50) 85 (115,0000.30) 45 (115,0000.20). Labor CostSuburban 110 (57,500) 85 (34,500) 45 (23,000). Labor CostSuburban 10,292,500. Labor CostDowntown 110 (112,000.30) 85 (112,0000.50) 45 (112,0000.20). Labor CostDowntown 110 (33,600) 85 (56,000) 45 (22,400). Labor CostDowntown 9,464,000. 23Adjustments for OutputsService-Mix Adjustments. Service-mix adjustment is useful tool for comparison of, for instance, two community hospitals that provide different services or have significantly different distributions of patients among their services. The service-mix adjusted volume is weighted by a normalized service-intensity factor. . 24Adjustments for OutputsService-Mix Adjustments. Example 9.7 Two hospitals, each with unadjusted volume of 10,000 patient days per month, provide only two services, S1 and S2, requiring respectively 3 and 7 hours of nursing time per patient day. Hospital A has a service-mix distribution of 2000 patient days for S1 and 8000 patient days for S2. Hospital B has 8000 days for S1 and 2000 days for S2. Calculate adjusted patient days for both hospitals. 25Adjustments for OutputsService-Mix AdjustmentsSolution In this case, total unadjusted volume is simply the sum of the volume for each service in each hospital, or Unadjusted Volume X1 X2.. Adjusted Volume W1X1 W2X2. Adjusted volume for Hospital-A 0.62,0001.48,000 12,400. Adjusted volume for Hospital-B 0.68,0001.42,000 7,600. 26Adjustments for OutputsCase-Mix Adjustments. The methodology for case-mix adjustment is similar to that for service-mix adjustment. Although most hospitals rely on advanced acuity systems, each system is based on the weight factors for the different acuity categories. Patients in each category require similar amounts of nursing care over a given 24 hour time period however, across categories the care requirements differ significantly. For acuity, the focus is on patients direct care requirements. The ratio of the hours of direct care provided to the total hours worked is another measure of productivity. 27Adjustments for OutputsCase-Mix AdjustmentsExample 9.8 Unit A and Unit B (from Example 9.3), a medical care unit in Memorial Hospital, classify patients into four acuity categories (Type I through Type IV), with direct care requirements per patient day being respectively, 0.5, 1.5, 4.5, and 6.0 hours. Annual distributions of patients in these four acuity categories in Unit A were 0.15, 0.25, 0.35, and 0.25. Annual distributions of patients in Unit B were 0.15, 0.30, 0.40, and 0.15. Calculate the case mix for these two units, and determine which unit has been serving more severe patients. 28Adjustments for OutputsCase-Mix AdjustmentsSolution. . . . .. 29Adjustments for OutputsCase-Mix AdjustmentsOnce the case-mix is determined, the output side of the productivity ratios can be adjusted by simply multiplying volume (patient days, discharges, visits) by case-mix index as Adjusted Patient Days Patient Days Case-mix index. Adjusted Discharges Discharges Case-mix index. Adjusted Visits Visits Case-mix index. 30Productivity Measures Using Direct Care HoursHours of Direct Care. Hours of direct care is an important component of productivity ratios. It serves as a building block for other ratios. To illustrate its development, let us assume that patients are categorized into acuity groupings requiring H1, H2, H3, ., Hm hours of direct nursing care per patient day. Further, assume that there are N1, N2, N3, ., Nm annual patient days in units 1 through m. The total amount of direct nursing care in nursing unit j would be calculated as 31Productivity Measures Using Direct Care HoursPercentage of Hours in Direct Care. This is an additional measure can be derived from the Hours of Direct Care calculation, as the ratio of direct care hours to total care hours.Percentage of Adjusted Hours in Direct Care. We also can determine the percentage of adjusted nursing hours as adjusted for skill-mix in direct patient care. 32Productivity Measures Using Direct Care Hours

Example 9.9

Using information from Examples 9.3 and 9.8

calculate

hours of direct care

percentage of hours in direct care, and

percentage of adjusted hours in direct care

for Units A and B of Memorial Hospital.

Compare these results in terms of percentage of

adjusted hours in direct care.

33Productivity Measures Using Direct Care HoursSolution Memorial Hospital uses an acuity classification system with 4 categories of direct hours of care per patient day 0.5, 1.5, 4.0, and 6.0 hours. The annual distributions of patients in these four acuity categories in Unit A were 0.15, 0.25, 0.35, and 0.25. The annual distributions of patients in Unit B were 0.15, 0.30, 0.40, and 0.15. Annual patient days for Unit A were 14,000, and for unit B 10,000. Annual hours worked were 115,000 and 112,000, respectively. 34Productivity Measures Using Direct Care HoursSolution.. 35Productivity Measures Using Direct Care HoursSolution.

41Graphically, Iso-costAssume NPs and MDs can be substituted. The hospital can either use 3 MDs and 2 NPs (pt. A), or 1 MD and 5 NPs (pt. B). Both result in the same level of quality and can produce the same quantity of output.IsoquantAre points A and B both technically efficient? Is point C technically efficient, why or why not? Remember what an isoquant is? Are all points on an isoquant technically efficient? economically efficient? 42Lets expand our discussion. . .

Data envelopment analysis is a recently developed technique that can be used to measure the multiple dimensions of productivity.

It allows multiple inputs and outputs to be used in a linear programming model that develops a score of technical efficiency.

43Data Envelopment Analysis (DEA)

DEA can be used to measure productivity of hospitals, physicians, group practices, or any other unit of analysis, referred to as the decision making unit (DMU)

The technical efficiency score of optimally producing DMUs equals 1 (and lies on the isoquant). All other DMUs are measured against these technically efficient DMUs, and have a score of between 0 and 1.

44DEA-- A Simple ExampleInefficiencySuppliesPhysicians P1, P2, and P3 are technically efficient, ceteris paribus, and would receive an efficiency score of 1. Physician 4, however is inefficient and must reduce either visits and or use of medications to become as efficient as his/her peers. The amount of the reduction necessary is called inefficiency.4 3 2 1P2P4P1P3LOS0 1 2 3 45DEA-- An ApplicationOzcan and Luke (1993), A National Study of the Efficiency of Hospitals in Urban Markets

The study examines the contribution of various hospital characteristics to hospital technical efficiency

Outputs included

Treated cases

Outpatient visits

Teaching FTEs

Inputs included

Capital

Plant complexity

Labor

Supplies

46DEA Applications, cont.

Slack values allow the manager to determine just how much the input/output mix must be changed for inefficient DMUs to reach efficiency

DEA is also useful for benchmarking or development of report cards, making it particularly useful in a managed care environment

47Improving Healthcare Productivity

Develop productivity measures for all operations in their organization,

Look at the system as a whole (do not sub-optimize) in deciding on which operations/procedures to focus productivity improvements.

3. Develop methods for achieving productivity improvements, and especially benchmarking by studying peer healthcare providers that have increased productivity and reengineer care delivery and business processes.

5. Consider incentives to reward workers for contributions and to demonstrate managements support of productivity improvements.

6. Measure and publicize improvements.

48The End

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